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Buying a Home at Auction
Auction Tips for Buyers
The rules of auctions are simple:
- Be prepared.
- Make sure you have access to the funds required to complete the purchase.
- Keep your bid within your price range.
Preparation is crucial for an auction.
A property bought at auction is bought as an unconditional sale. When the hammer falls, the property has been purchased. There isn't a cooling off period, and the you will be required to sign the contract on the spot, and then pay the deposit, usually 10%.
Open house days and inspections by appointment are the best times for you to do your preparation. This is the time to make enquiries about the property, get a copy of the Contract of Sale, take a good look around the house and clarify all particulars. Consideration should be given to items such as: is the dishwasher included in the sale? If the property is being rented, do items such as curtains belong to the tenant or the landlord?
If you are planning to buy the property, this is also the time when building and pest inspections should be performed. Inspections are an additional cost, however you are encouraged to conduct inspections, as properties sold at auction are unconditional and not retractable. Inspections can only be held at the permission of the current owners. (Hint - if a vendor refuses to allow an inspection, it is possible they are trying to hide something.)
True Choice Home Loans can do the hard work of organising finance through to pre-approval / conditional approval. It is essential to go to the auction with finance organized, otherwise DO NOT BID. The finance arranged will be specific to a property, and usually is not transferable to another property, without scrutiny by a lender.
Should you bid successfully, you will be required to pay a deposit and provide a pre-approval letter, arranged by True Choice, from the lending institution stating the availability of finance for that particular property and up to a certain amount.
Allowing True Choice Home Loans to organising finance prior to auction day will ensure that you don't find yourself with the burden of auction costs for a property you were not able finance as the costs of putting the property to auction a second time is at your expense.
Attending other auctions can help give you a clearer picture as to what to do on the day of the auction.
Arrive prior to the auction commencement. It is important that you have enough time to check that there haven't been any changes to the contract you have been given, and then prepare for the bidding. Changes to the contract can have a negative impact on a conditional finance approval, and in some circumstances, negate the offer altogether.
It is vitally important that you know your highest price before bidding, and to not get carried away with the excitement. After overspending, and winning at auction, additional finance may not be possible.
The auction will begin with the auctioneer reading the details of the property contained in the Contract of Sale. Then the auctioneer will call for bids.
It is a good idea is to stand where you have a good view of the other bidders. Other bidders may raise their hand to make a bid, and call out a bid if they want to move a bid by larger or smaller amounts, than the auctioneer is calling.
The reserve price is the price below which the vendors will not sell, and bidding usually commences lower than this. Once the reserve is reached, the property is declared 'on the market' and the property can be sold.
When you succeed at auction, you are required to sign a Contract of Sale immediately, and hand over your 10% deposit.
If the reserve price has not been reached during the course of the bidding, the property may be 'passed in' for private sale. You now have the opportunity to negotiate a private sale with the auctioneer. It's important to remember that not all bids are genuine so don't be afraid to offer a price below the highest auction bid.
Even though you may have been unsuccessful at the auction, you will still need to pay inspection, solicitor and valuation costs.
TopAuction Tips for Vendors
From a vendor's viewpoint the auction process begins when the vendor signs an authority with the agent that gives permission to take the property to auction. Before signing an authority, vendors should be comfortable with the marketing program presented by the agent, as this is the key to attracting buyers. Whether the house is sold at auction, or not, the vendor will have to pay for the marketing program.
Once the authority is signed, there are three key periods in the auction process.
1st Period: Prior to the auction day. This is when the marketing program is put into effect, advertising begins, inspections or open house days are arranged. The vendor should allow as many appointments, or open days, as possible as this may be the key to attracting bidders at the auction.
2nd Period: The auction day itself. At this stage the vendor will have a reserve price ready to pass to the auctioneer on the morning of the auction. The reserve price should have been determined with help from a valuation prior to the signing of the authority. From this analysis, a price range will have been established and a reserve price chosen.
If the highest bid reaches or exceeds the reserve price, the property is sold 'under the hammer' (i.e. - at auction) and the Contract of Sale is signed immediately by the vendor and buyer.
Should bidding fall below the reserve price the auctioneer will look to the vendor for further instructions before 'passing the property in' (i.e. not selling at the auction). At this point the vendor can reconsider the reserve price.
3rd Period: Following an auction. Where the property has not sold, the auctioneer has sole agency for an agreed number of days after the auction date to achieve a sale. The auctioneer should follow up all enquiries made before and after the auction day and continue to promote and market the property.
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